The G-20

What the G-20 Does to Stabilize the World Economy

BY JOE BRISBEN

We have been discussing how the Federal Reserve and the Treasury Department worked together to restore the U.S. economy following the sub-prime mortgage crisis of the last two years. In the last issue, I touched on international cooperation, and I want to turn my full attention to it now.

The Group of Twenty (known as the G-20) finance ministers and central bank governors was established in 1999 to bring together important and developing economies to discuss key issue in the global economy.

It has become the premier forum for international economic development and promotes open and constructive economic discussion on key issues relating to global economic stability. By doing so, the G-20 helps support growth and development throughout the globe.

The G-20 was created in response both to the financial crisis of the late 1990s and to a growing recognition that key emerging countries were not being included in global economic discussions and governance.

The G-20 is made up of representatives of 19 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Republic of Korea, Turkey, United Kingdom, and United States. The 20th member is the European Union.

The managing director of the International Monetary Fund (IMF), the president of the World Bank, and the chairs of the International Monetary and Financial Committee and Development Committee of the IMF and the World Bank serve as ex officio members.

Together, these members represent 90 percent of the world’s gross national product, 80 percent of world trade, and two-thirds of the earth’s population. Because of this representation, the G-20 has a high degree of legitimacy and influence over the management of the global economy and financial system.

With a powerful level of cooperation among its members, the G-20 helped stabilize the world economy during the recent crisis by coordinating money supply and interest charged to major banks.

The group has also done a great deal to make fiscal policy around the world transparent, to combat money laundering, and to combat tax evasion and the financing of terrorism.

International cooperation among G-20 members was crucial during the economic crisis that spread around the globe in 2008. For example, it committed to the unprecedented expansionary macroeconomic policies, including the fiscal expansion of what amounted to $5 trillion.

It also significantly enhanced financial regulations, notably by establishing the Financial Stability Board (FSB) and strengthening the International Financial Institutions (IFIs), including the expansion of resources and improvement of precautionary lending facilities of the IFIs.

Unlike such international institutions as the Organization for Economic Cooperation and Development (OECD), the IMP, or the World Bank, the G-20 has no permanent staff of its own.

The G-20 chair rotates among members and is selected from a different regional group of countries each year. The next G-20 meeting will be February 27-28 in the Republic of Korea. In 2011, the meeting will be in France.

The chair is part of a revolving three-member management team of past, present, and future chairs known as the “troika.” The incumbent chair establishes a temporary secretariat for the duration of its term. It coordinates the group’s work and organizes its meetings. The troika’s role is to ensure continuity in the G-20’s work and management across host years.

The meetings are usually preceded by meetings of deputies and extensive technical work. This takes the form of workshops, reports, and case studies on specific subjects that aim to provide ministers and governors with contemporary analysis and insights and to better inform their consideration of policy changes and options.

Joe Brisben is a financial advisor at BDF Investments, a division of Broker Dealer Financial Services, member of FINRA and SIPC. Hear his commentaries at 11:50 a.m. weekdays on KCCK, 88.3 FM.

To read more articles by Joe Brisben on money, please visit the Index.

Joe Brisben is a financial advisor at BDF Investments, a division of Broker Dealer Financial Services, member of NASD and SIPC. Hear his commentaries at 11:50 a.m. weekdays on KCCK, 88.3 FM.